Split decision
By Daniel M. Ryan
web posted August 1, 2016
Sometimes it’s easy to admit that you’re wrong. With Ethereum Classic, the fork of the cryptocurrency Ethereum undertook for reasons of principle, I had presumed that it would quickly fall by the wayside. As I explained last week, the case for the hard fork not only had a lot of practical reasons behind it but also had natural justice on its side. Although the blockchain-altering hard fork to save buyers of The DAO from a bug-exploiting theft did plant the seeds of moral hazard, it’s the type of seed that takes a very long time to grow. At this stage, every supporter of the hard fork sees it as an emergency measure that required a radical and temporary revaluation of priorities. Once the emergency was over, as it is in the Ethereum ecosystem, everyone would return to normal standards. That’s how a lot of American viewed the interventions of the New Deal: temporary measures that would either be scaled back or repealed once America got back on track. Once the breadlines disappeared, so would the relief programs et. al. With the luxury of hindsight, we know that those hopes proved not to be true. But, we also know that the “bread and circuses” took a very long time to develop. So much so, that there are legitimate arguments that the bread-and-circuses deterioration was not caused by the New Deal but by later cultural decay. From this angle, the inner-city types were not degraded by the welfare state but by feminism, feel-good liberalism and Cultural Marxism.
Analogously, there are those who argue that the housing bubble and the resultant mortgage crisis were not caused by early-1990s forced lowering of lending standards to benefit certain protected classes. They were caused by greedy and unscrupulous bankers, mortgage lenders, etc. who cynically exploited the high-minded anti-discrimination goals to make exorbitant and reckless profits. Had there been no Angelo Mozillo, James A. Johnson or Franklin Raines, so this argument goes, the Housing and Community Development Act of 1992 and the tightening-up of the 1977 Community Reinvestment Act would have not led to any disaster. This argument is more questionable than the one that exculpates the New Deal, but the main difference between the two is the span of time between spring blossoms and fall cankers. Empirically, it’s easy to observe that moral-hazard seeds planted by “help the helpless” programs take a long time to germinate and grow. So long, that the connection between the seeds and the fruits is often obscured - and there’s always cause to say that the cankers were caused by changing soil or unexpected weather. That’s why historical analyses of moral-hazard processes are controversial. Who dares say that there’d be a ‘Hood if the two-parent family had not broken down? Would there be a welfare crisis if a critical mass of left-wing activists not succeeded in pushing the new-fangled idea that welfare was not a government-orchestrated help-the-needy program but a civil right? Would we have seen “Welfare County” emerge nonetheless? There are arguments on both sides. Both sides illustrate the ambiguity of a process that takes a long time to unfold. Other events do intervene.
Because of the natural-justice undergirding of the Ethereum rollback, plus the fact that the bulk of the Ethereum talent were going along with it, I had concluded that the alternative blockchain Ethereum Classic would fade away. More specifically, Ethereum Classic had five obstacles that I thought would have sealed a sorry fate:
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Since each holder of Ethereum got an equal amount of "new" Ethereum and Ethereum Classic, there was the risk of them dumping the latter for what they could get: treating it as "free money."
- Since Ethereum Classic didn't change anything in re The DAO, the hacker's "Dark DAO" contained ~3.7 million Ethereum Classic which was slated to be withdrawable as of last Wednesday. Since I assumed that the hacker was in it for a quick profit or the lulz, I concluded that the 3.7 million presented a supply-overhang shadow that could wreck its price. (In fact, the hacker has not done this.)
- Ethereum Class is technically an altcoin: specifically, a de facto clonecoin. Clones typically have values of about 1-2% or even less of the original.
- Assuming economically-rational miners, a low value means low hashpower and therefore low security. Given that Ethereum Classic stuck the middle finger at Ethereum, a low hashrate would make it vulnerable to a hostile 51% attack by a swarm of Ethereum miners that would leave it wrecked.
- Because of the above four risk factors, I had concluded that no major exchange would take the risk of listing it. This reticence was the case as of the time I wrote my last piece. As of Saturday before last, the only exchange that had listed it was a minor peer-to-peer exchange.
The above risk factors, so I supposed, would dampen demand for Ethereum Classic to the point where it would fade away. That’s precisely where I went wrong. As Murphy’s luck would have it, the time my last piece went live coincided with Ethereum Classic getting listed on one of the biggest altcoin exchanges: Poloniex. Much to my surprise, the trading volume of Ethereum Classic quickly became much greater than Ethereum’s. Soon, other altcoin exchanges got on board; so did bigger Bitcoin-with-alts exchanges like Kraken. As I write, the 24-hour volume of Ethereum Classic across all major exchanges is more than $10 million - and even more than Ethereum’s $9 million. Ethereum Classic’s price had stabilized at about 12% of Ethereum’s until it jumped up.
More than the price, the volume has made Ethereum Classic viable. Rational miners can see that they can dump whatever Classic they snap up from mining rewards without disturbing its price. Inevitably, the hash power commanded by Ethereum Classic is a heathy percentage of Ethereum’s; as I write, the ratio is a bit bigger than the price ratio between the two. Classic’s hashpower is so large, an entire pool has only a faint hope of 51%-attacking it.
There’s not only been at least one threat to do so, but there’s also publicly-available code to modify Classic miners to do exactly that. Scroll down this article, look for “Changed ApplyTransaction to only produce an error,” and you’ll see a code modification for a rogue mining program that would reject each and every transaction on Ethereum Classic’s blockchain. If enough miners deploy enough hashpower to command ~51% of its total hash rate while using that rogue-miner program, they’ll make the blockchain useless. Their lock-down will be the consensus, which means that users of Ethereum Classic won’t be able to use their holdings for anything. Even though that first threat was rescinded, there’s now an Ethereum mining pool dedicated to launching a 51% attack on Classic once it gets enough hashpower.
Despite those threats, Ethereum Classic is thriving. So much so, that the rumour mill is grinding out speculation that some Bitcoin whales have deployed their wealth to make a whale-sized statement in favour of blockchain immutability. Ethereum Classic is in the odd position of being like a breakaway city built over a fault line, and the citizens of the de-amalgamated city they broke away from have a working earthquake machine. All they lack is the power to make that machine wreak its worst.
But that breakaway city is not helpless. If you clicked the last two links, you’ll see the attack pool is protected by Cloudflare. When I last clicked it, I got Clouldflare’s “Website Is Offline” 522 page. In the announcement post, there’s a revealing warning: “****Server is experiencing issues**********” So it seems that the worthies of the breakaway city know about the earthquake machine.
I’m actually glad I was wrong about Ethereum Classic’s viability, because its thriving does show a unique facet of the cryptocurrency ecosystem. As you’re about to find out, it’s like an alternate-universe scenario that boggles the mind. If you think what’s about to follow is strange, it’s actually handicapped in accuracy to keep it strange within normal parameters. A less inaccurate analogy would take us into a realm of hard-geek science fiction that normal folks would find unbelievable.
Split Conventions
Imagine being shot into an alternate universe wherein the Republican Party has a little-known rule that forbade anyone who had registered with another party from receiving the nomination. Despite that rule being extant, it’s known by few; the ones who know it are mainly trivia hounds.
There are rules like this in the real world. Case in point: a section in the Constitution of Canada that enables the "Royal Prerogative of Disallowance" It allows Queen Elizabeth II to strike down a law passed by Canada’s Parliament up to two years after it’s been enacted. It also allows the strike-down of a provincial law one year after its enactment. Although it’s hardly been used at all, and has never been used in more than eighty years, it’s still part of Canada’s Constitution. It’s still there.
The Republican-or-independent-only rule in that alternate universe is like that Prerogative. In Pubbie circuits, it's generally agreed to be unenforceable: a set of dead letters like those fustian laws mandating that the driver of a "horseless carriage" be preceded by someone on foot waving a red flag by day and a red lantern by night.
Other than the presence of this new rule, the 2016 primary continues in the same way as it has in the real world. The Trump Train barrels towards victory. There are Never Trumpers fuming about it, but by all measures Trump's gonna win it. Some pundits bring up that alternate rule, but mostly in the spirit of "Howz about that." None of the other candidates so much as mention it. In mid-late May, a few pundits publicly worry about it being used by malicious litigants to throw Trump off the ballot. But the consensus continues to believe that these pundits were merely illustrating a theoretical vulnerability. No-one believes that anyone would actually do it.
Until June 1st, that is. On that day, it’s is seized upon by a group of rogue lawyers from the Democrat party. They publicly vow to use it to sue the Pubbies in all 50 states to get Trump - i.e., the Republican party - off the Presidential ballots. Legal beagles conclude that they won't succeed in most states, but they will succeed in enough states to hand the presidency to Hillary. That theoretical vulnerability is now a real, live danger.
Reince Preibus et. al. now have a real crisis on their hands. After working night and day fora month, they cobble together a find-and-replace gimcrack that makes Donald Trump the legitimate candidate for President. In effect, they roll back the rules to render that bothersome one effectively void. They bat away the “rule-immutability” complaints on the sensible grounds that they’re not being employed to hand the Presidency to the Dems. Nor are they employed to thwart the will of all those Republicans who’ve given Trump his majority delegates.
Although the bigwigs convince themselves that they’ve satisfied every sane Republican, they’ve tindered and lit a revolt. The Never Trumpers, now fed up, snap to action. Seizing upon the gimcrack as a railroading job, they push with all they’ve got for the convention held with the original rule still in force: a convention where Donald Trump is disqualified because he was once registered with Reform and the Democrats. All the time Priebus & Co., were working on a fix, the Never Trumpers were very publicly grumbling. When the fix is pushed through, they show they’re serious. Serious enough to push the fight to formal arbitration.
The arbitrators in this alternate universe are not like the ones in the universe we know. They hand down a decision that's mind-bogglingly odd in the normal world but not in the cryptocurrency world. They decide that both sides have an equal right to "inherit" the Republican party.
And the result? An even stranger political world wherein every paid-up member of the Pubbies is now a member of two parties: the Republican Party (who will nominate Trump, in accordance with the gut-level justice of majority rule) and the Republican Classic party (who will nominate another candidate who qualifies under that rule.) Just like the holders of pre-fork Ethereum, every paid-up Pubbie is a stakeholder in both parties. Every privilege they enjoyed as members of the original Republican Party, they enjoy in equal measure in both Republican and Republican Classic.
Since both offshoots are bound by the agreements of the original Republican Party, both of them are bound to the same timelines for each of their respective conventions. The Republican Classic forces hastily rent a different stadium and get it ready. This is where things get dicey for the delegates. Each selected delegate - they'd all be selected at this point - is now a voting delegate in both conventions. The trouble is, each convention is held in a different location but has exactly the same schedule. So, all the delegates that exercise their voting power in one convention cannot do so in the other convention. They can’t be in two places at once.
The convention-watchers and handicappers immediately grasp the fustercluck now opened up. Everyone realizes that the Trump delegates would be nutso to attend the Republican Classic convention. But the dilemma in front of the Cruz delegates is palpable. Should they go to the Republican Classic convention and get Cruz nominated, even though Republican Classic might well be a colossal waste of time and energy? Is Cruz better off losing gamely at the Republican convention, even though he would betray a lot of his Never-Trump stalwarts, or should he bull through and shoulder the risk of being the nominee of a fringe party? Could he leverage a nomination so that Republican Classic becomes the “true” Republican Party? Does he have the reach, particularly with the down-ticket candidates, to make the Trump-nominating Republican Party the new Whig party? Or is his best bet to lever against Republican Classic, to throw it to the fringes in exchange for (say) the VP slot on the Republican ticket?
In all those speculations, there’s an undertone of assumption that Republican Classic isn’t going to last long. Both Trumpers and the Priebus circuit treat it as nothing more than a joke. They dub the Republican Classic convention the “Cry-Baby Convention.” Virtually everyone believes that Republican Classic’s gathering will only attract the lesser ranks of new media and sundry bloggers. The mainstream media and top-tier new media like Drudge will stick to the Republican convention.
Until CNN announces that it will provide simultaneous coverage of both. So does Fox News, and Drudge himself…
Alternate Universes
At this point in the drama, the analogy more-or-less breaks down. Mainly, because competing cryptocurrency ecosystems are a poor fit for competitive elections. There’s no cryptocurrency equivalent to “you either vote for Donald or you’re voting for Hillary.” There are no cryptocoin rules comparable to the winner-takes-all finality of a general election.
Still, it gives a good idea as to what’s going on in “the battle of the blockchains.” That malicious pack of Democrat lawyers are like the hacker; the gimcrack fix of the Republican Party’s (imaginary) rule is like the hard fork to excise the hacker’s gains; the imaginary adjudication creating both Republican and Republican Classic is like Ethereum Classic starting with the same blockchain as Ethereum without the blockchain-altering hard fork; the rule-sticklers who get behind Republican Classic are like the principled blockchain-immutability folks supporting Ethereum Classic. The 51%-attack pool is like a band of Trump delegates plotting to use their rightful votes in the Republican Classic convention to nominate Oprah Winfrey or Bernie Sanders. And of course, CNN’s shock announcement is like Poloniex agreeing to list Ethereum Classic.
The real world of cryptocurrency makes more accurate analogies stranger. Since both networks started with the same one, a more accurate analogy is more like a fantastical episode of Star Trek where the Enterprise gets marooned in a region of space that flickers between two different universes. Captain Kirk and the others have to watch their step extra-carefully if they don’t want their fixes to go to waste because they took effect in an alternate universe.
The private keys of Ethereum holders prior to the split are exactly the same and equally valid on both blockchains. These stakeholders now have to worry about whether or not the transaction that sends out their Ethereum will also send out their Ethereum Classic and vice-versa. Known as a “replay attack,” there are already guides to protect against it: guides explaining how to tease the Ethereum into a different address while leaving the Ethereum Classic alone. More vulnerable are the exchanges, which have had to take steps to make sure that the Ethereum Classic they received isn’t drained by a clearly malicious version of that attack. This intrepid cryptonaut hypothesized a step-by-step plan to take advantage of exchanges in that way, and a CoinDesk article relates that those attacks have been working. It’s gotten to the point where one heavyweight exchange, BTC-e, has stated that Ethereum Classic is a scam.
The split into two blockchains, one for natural-justice pragmatics and one for blockchain-immutability stalwarts, can be adduced to show that cryptocurrency heralds a new kind of freedom: a right-of-exit that simply does not exist in the bricks-and-mortar world. But of course, the new details have summoned up new devils. New freedoms have come with new costs. In the cryptocurrency frontier, you better learn quickly that freedom ain’t free. 
Daniel M. Ryan, as Nxtblg, is shepherding the independently-run Open Audi Initiative Prediction Market Shadowing Project. He has stubbornly assumed all the responsibility and blame for the workings and outcome of the project.